Innovation and the firm export intensity: the moderating effect of the mode of entry/Innovacion e intensidad exportadora de la empresa: el efecto moderador del modo de entrada.

Author:Monreal-Perez, Joaquin
 
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  1. Introduction

    The continuous renewal of competitive advantage through innovation has been stressed a number of times by the literature, both at an international level (Leonidou et al., 2007; p. 744; Roper and Love, 2002; p. 1087; Wakelin, 1998; p. 829), and for the Spanish case (Filipescu et al., 2009; p. 2; Pla-Barber and Alegre, 2007; p. 275; Eusebio et al. 2004; p. 85). In this context, Porter (1998; p. 179) considers the product innovation and the process innovation as key issues in economic development. This confirms the arguments of the resource-based view (Wernerfelt, 1984; p. 175), which argue that the strategic value of the innovative activity is greatest when it is difficult to imitate, and when it is integrated into organizational routines, which makes it difficult for the competitors to copy them (Collis, 1994; p. 146). Recognising the strategic value of innovation, Valdaliso (2004; p. 16) argues that most of the economic problems that Spain faces arise from a model of growth in which the predominant strategy is rent seeking rather than increased efficiency and innovation (3). There is a need for Spanish firms to direct their investment strategies towards innovative activities, if they want to succeed in the export markets and increase their competitiveness, as confirmed by a number of recent empirical studies, including those by LOpez and Garcia (2005; p. 540) and Filipescu et al. (2009; p. 15).

    The strategic importance of innovation for the firm suggests that it is important to use these modes of entry study that favour the international transfer of such asset. In this sense, a number of authors argue that the international behaviour of the firm may be influenced by the international mode of entry (CalderOn et al. 2007; pp. 144-160). In the present study, we look at the entry mode choice from the transaction costs theory perspective (Teece, 1986; pp. 23-25), arguing that firms with specific resources (such as innovation) may prefer to integrate the international distribution channel for their products within their organisation, in order to protect themselves from the rational fear of looking how their internationalization partners exploit the opportunity to take advantage from the know how transfer as a consequence of the trade relationship (Anderson and Gatignon, 1986; pp. 10-14).

    However, most of the studies about the choice of mode of entry based on the transaction cost theory (and, in particular, on the specific nature of activities as the main factor determining that choice), have been conducted with large scale firms, for example in Martinez-Noya and Garcia-Canal (2011, p. 268), Hennart (1991; p. 487), Kim and Hwang (1992; p. 37) or Chen and Hu (2002; pp. 199-200). This raises the question of which mode of entry use Spanish firms (that mostly export instead of establishing in any foreign market) when they have to transfer extending internationally such specific assets.

    In this work we try to answer the main research question: the identification of the most adequate mode of entry to transfer the firm innovation activity to the export markets. We try this through the analysis of the moderating impact that the entry mode exerts on the positive effect of innovation on the firm export behaviour. Thus, in this work it is studied whether the transaction costs theory arguments come true. The purpose of this analysis is to see whether, following the predictions made by the transaction costs theory, the positive effect of the innovative capabilities is greater when the exporter use a mode of entry that protects from imitation (Teece, 1986; p. 37), or whether, on the contrary, the choice of mode of entry is explained by other factors (4).

    Nevertheless, before dealing with this main matter, two previous questions are studied: first, the effect of innovation on the export intensity of the Spanish manufacturing firm; second, in the internationalization stages models (as the Uppsala model or the life cycle of the product), it is argued that as the firm improves its internationalization commitment, it uses modes of entry that imply more control. In this research paper, instead of analyzing this relationship, frequently studied, we look into the opposite effect: this between the export mode of entry on the export intensity of the firm (5).

    This article is divided into the following sections. First, the theoretical framework is explained, through the analysis of the innovation role on the export activity of the firm, the export modes of entry choice from the perspective of internationalization by stages models and the transaction costs theory, and the moderating effect of the exports modes of entry on the relationship innovation-exports. In this first section, the research hypotheses relative to each of these relationships are formulated. Second, the methodology and the variables measurement are described. This is followed by the results obtained in the analysis. Finally, the results are discussed and some conclusions are drawn.

  2. Theory and hypotheses

    The study model is developed using various theoretical frameworks (the resource based-view, when underlining the strategic value of innovation in export markets, the stages internationalization model, when describing the process of export development of the firm, and the theory of transaction costs, when analyzing the mode of entry used to transfer their innovative capacity) in order to explain and develop three hypotheses about the relationship between innovation, mode of entry and the export intensity of firm (figure 1).

    [FIGURE 1 OMITTED]

    2.1. Innovation and export activity

    In recent years, there has been a proliferation of studies which explain the differences in profitability between firms in terms of the resource based-view, which argues that firms, in a given sector, are heterogeneous when considering the strategic resources they control, and that those resources are not perfectly transferable between firms, so that heterogeneity persists over time (Barney, 1991; pp. 105-106). Resources need to be protected from the potential threat to be stolen or copied by competitors, since they are the main source of the firm competitive advantage, allowing them to be in a privileged position in the market (Dierickx and Cool, 1989; p. 1507). Consequently, inimitability is the key factor which makes a resource being a source of sustainable competitive advantage, assuring that it cannot be duplicated, and therefore, lose its value and scarcity (Miller and Shamsie, 1996; p. 520). From this point of view, inimitability can explain the superior strategic value of innovation, since it operates through its integration into the organization routines, which makes it harder for competitors to imitate this capacity (Collis, 1994; p. 148).

    In supporting empirically the innovation strategic importance, recent studies have stressed the positive effect of innovative activity on the development of exports among Spanish firms, underlining the role of that activity as a source of international competitive advantage based on the firm differentiation (Caldera, 2010; p. 676; Filipescu et al., 2009; p. 7; Pla-Barber and Alegre, 2007; p. 276; LOpez and Garcia, 2005). The explanation draws on the perspective that, in the export markets, there is a pre-selection of those firms that have already been successful in their domestic market as a consequence of their innovative policy, which enable them to differentiate their products (Bleaney and Wakelin, 2002; p. 14).

    In addition, there is wide evidence stating that export markets not only pre-select those firms that have been able to differentiate themselves, but that they also pick out the most productive and, for that reason, the most internationally competitive firms (Delgado et al. 2002; p. 420). The greater productivity of innovative firms arises from the fact that innovation generates competitive advantage in costs, by developing new and more efficient productive processes (LOpez and Garcia, 2005; p. 543; Castellani and Zanfei, 2007; p. 160). Pla-Barber and Alegre (2007; p. 278) underline the role of innovation in international markets by arguing that a single market may not be broad enough to support the innovation needs of the firm. As a result, an innovative firm may try to export instead. In this context, the export markets may represent an area in which the firm can exploit their innovations and thereby enhance its economic performance (Love and Mansury, 2009; p. 632).

    In concrete terms, there are theoretical reasons for believing that innovative firms, having the capability to differentiate themselves and to introduce processes that save on costs, are able to set prices lower and, therefore, achieve better results in their export activities (Caldera, 2010; p. 658). Consequently, innovative firms are more likely to export, because they anticipate greater benefits from export activity than firms that are not innovative. Therefore, according to the abovementioned arguments, the following hypothesis is suggested:

    H1: Innovation causes a positive effect on the firm export intensity.

    2.2. Export modes of entry and firm export intensity

    Andersen (1997; p. 29) considers the mode of entry as an institutional arrangement for managing international business transactions. According to Root (1994; p. 5), there are three main modes of entry into international markets: exporting, contractual arrangements with partners, and investment. Among Spanish firms, exporting is the principal activity of internationalization (Fernandez and Nieto, 2005; p. 82) because it suits better to the vast majority of Spanish firms (small and medium sized), since it requires less resource commitment and implies less risks (Leonidou et al., 2007; p. 736). For this reason, in the present study we concentrate on the export strategy, within which there are various modes of entry, each of which is associated with a different level of control (6). In...

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